Yahoo Finance Read This Before Buying Linamar Corporation (TSE:LNR) For Its Dividend
Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, Linamar Corporation (TSE:LNR) has paid dividends to shareholders, and these days it yields 1.1%. Let’s dig deeper into whether Linamar should have a place in your portfolio.
See our latest analysis for Linamar
5 checks you should use to assess a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
Does it pay an annual yield higher than 75% of dividend payers?
Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
Has it increased its dividend per share amount over the past?
Does earnings amply cover its dividend payments?
Will it have the ability to keep paying its dividends going forward?
Does Linamar pass our checks?
The company currently pays out 3.9% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. Going forward, analysts expect LNR’s payout to increase to 4.8% of its earnings. Assuming a constant share price, this equates to a dividend yield of 1.1%. Furthermore, EPS should increase to CA$9.55. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Dividend payments from Linamar have been volatile in the past 10 years, with some years experiencing significant drops of over 25%. This means that dividend hunters should probably steer clear of the stock, at least for now until the track record improves.
Relative to peers, Linamar has a yield of 1.1%, which is on the low-side for Auto Components stocks.
Next Steps:
Now you know to keep in mind the reason why investors should be careful investing in Linamar for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I’ve put together three essential factors you should further examine:
Future Outlook: What are well-informed industry analysts predicting for LNR’s future growth? Take a look at our free research report of analyst consensus for LNR’s outlook.
Valuation: What is LNR worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether LNR is currently mispriced by the market.
Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
